More deals and more venture capital in the first quarter illustrate that the competitive need for innovation has driven Ottawa's tech sector out of its slump, experts say.
According to the Ottawa Centre for Research and Innovation, about $34.2 million was doled out to both startups and more established companies in the first three months of the year, about twice as much as the year before.
Twelve deals were made, with six accounting for the lion's share of the new investment – $12 million for Cloakware, $6 million for Third Brigade, $5 million for Epocal, $3 million each for BTI Photonics and AssetMetrix, and $750,000 for Netistix Technologies.
"It was the most deals in Ottawa since the fourth quarter of 2002," said OCRI president Jeffrey Dale. "I think we're starting to see some markets coming back. Great ideas are still here and the money proves it. For Cloakware and BTI, this is multiple rounds for them."
Mr. Dale said he was pleased, not only with the number of deals, but by the broad spectrum of companies.
"We're starting to see the economy coming back. There are hires, sales and that's all part of the upswing."
One company that characterizes that broader spectrum is Liquid Computing, the first local firm to announce a VC round in 2005.
While the company's financing was modest – a follow-on investment that brought its seed round to $2 million – its product breaks new ground for the Ottawa tech sector. Liquid Computing is in the enterprise server market with a new computer architecture intended to bring the high reliability computing from the communications world to the enterprise.
Mr. Dale said local VCs were asked for their thoughts on the rest of the year. "They see the numbers going up. The deal flow looks good and there's a favourable federal budget – if it gets passed."
Historically, he said, the second quarter is a lazy one in regards to financing, but even that may be ripe for a surprise this year. "Most deals are done in the first and last quarters, but now we see them being paced throughout this year. We're optimistic about that and so are many others."
One of those people is Paul Labarge, senior partner of Labarge Weinstein LLB and president of the Canadian Advanced Technology Association.
"The numbers are consistent with what my own observations have been," he said. "Investors are taking their hands out of their pockets, and the best part is that they're helping enterprises and not just palliative-care cases."
Mr. Labarge added that while there was a drastic downturn in tech fortunes not long ago, "the reality is life hasn't stopped. People's need for information grows, new business grows, speed grows, new methods of manufacturing to drive out costs grows."
As far as trying to detect trends for the year, Mr. Dale said it's too early to tell. "There was no wireless in Q1, but there was lots in the fourth quarter. The investing isn't linear, but there are certainly no disturbing trends."
In 2004, the overall amount of investment in local firms remained near flat with 2003 at almost $250 million. However, the number of deals jumped more than 44 per cent as VCs make more calculated and conservative investments.
As reported last month by the OBJ, a major stumbling block for a resurgence in the local tech sector is a depleted pool of angel financing for early stage startups. Many were burned by the tech meltdown and have lost their appetite for risk.
Mr. Dale, however, remains hopeful that the Ottawa Angel Alliance will help bridge that gap.
"They are 50 high net-worth individuals who invest in startups. At OCRI, we ask how we can smooth things out for them. So far, so good," he said.
BY SCOTT TAYLOR
